Personal injury lawyers, conveyancers and other solicitors who arrange or advise on insurance policies face new rules under a European directive coming into force next February, dealing with issues such as conflicts of interest and commissions.
Paul Philip, chief executive of the Solicitors Regulation Authority (SRA), said it planned to keep the rule changes implementing the Insurance Distribution Directive (IDD) – which replaces the Insurance Mediation Directive – to a minimum.
The IDD applies to firms that take part in ‘insurance distribution activities’, such as selling or advising on insurance contracts.
The SRA said personal injury, conveyancing and private client firms were most likely to be affected, for example those arranging after-the-event insurance for accident victims or defective title insurance for property owners.
The changes set out in a consultation paper include requiring firms wanting to carry out insurance activities for the first time to notify the SRA by filling in a form, so the SRA could pass on the information to the Financial Conduct Authority (FCA).
Firms will also have to consider how to make sure information is meaningful to clients and provide it in writing, in a way that is fair, clear and not misleading.
On conflicts of interest, firms must disclose if they have 10% or more voting rights or capital in an insurer or vice versa; whether they give advice based on “fair and personal analysis”; or, where they are contractually bound to place business with specific insurers, the name of the insurers.
Firms must also disclose the ‘nature’ and ‘basis’ of any remuneration they receive in relation to insurance contracts, as well as accounting to the client for any commission received, including for any post-contract fees the client may incur during the life of the policy.
The SRA called on firms to assess what changes they needed to make to procedures to comply with the new rules by 23 February 2018.
The SRA added: “We want to make sure that firms comply with the IDD when carrying on this work without imposing a significant additional regulatory burden.
“The FCA has indicated that it is comfortable with an approach where we rely on existing rules and guidance that will achieve the same outcomes rather than copying out the requirements of the IDD in every case.
“We have therefore, endeavoured to make sure that changes to our rules are made only where necessary and wherever possible we avoid unnecessary duplication of any existing SRA requirements.”
Mr Philip added: “We have worked closely with the Financial Conduct Authority as the primary regulator and they are happy with our approach.
“For example, in terms of the training requirements that the directive imposes, our code of conduct already makes it clear that the profession should assess its needs and take action to make sure it provides a proper standard of service to clients.”